Strategic Briefing – Staring at the Fiscal Cliff

Fiscal-Cliff Concerns Hurting Economy as Companies Hold BackBloomberg | June 19
Companies are starting to delay hiring and spending out of concern that Congress won’t reach a compromise in time to avoid automatic tax increases and budget cuts that would pull billions of dollars of purchasing power out of the economy. Faced with a so-called fiscal cliff of more than $600 billion in higher taxes and reductions in defense and other government programs in 2013, U.S. companies are pulling back, though the deadline for congressional action is more than six months away.

It’s closer than you may thinkIrwin Kellner (MarketWatch) | June 19
The fiscal cliff may be six months away, but it is already affecting the United States economy. As I warned at the beginning of last month ( see column ), unless current law is changed, taxes will rise and spending will fall big time, come year-end. Taxes are set to jump by $500 billion, while federal spending is set to decline by more than $130 billion. Combined, this will equal 5% of our gross domestic product. Along with Europe’s debt crisis and the uncertainties over the longevity of the euro, this is enough to turn weak growth into an outright downturn — in other words, a new recession.

Taxmageddon to Hit These States and Congressional Districts Especially HardThe Heritage Foundation | June 18
Taxmageddon is getting ready to suffocate the U.S. economy under crushing tax increases on January 1, 2013. These tax hikes include the expiration of the 2001 and 2003 tax reductions and the tax increases from the 2010 health care law. The Heritage Foundation’s Center for Data Analysis (CDA) ran the numbers based on data from the IRS and found how much Taxmageddon will cost the average taxpayers in each state and congressional district. The $494 billion in new tax increases is $4,138 more in taxes for the average family in 2013, but some places will pay more.

Potential Fiscal Cliff Makes Municipal Bonds Even More Attractive: MartiakYahoo Breakout | June 14
“I love muni’s as an asset class,” says Mark Martiak [of Premier Wealth/First Allied Securities], echoing the view of almost no one Breakout has spoken to in its 18 months of existence…. The default issue looms large for muni’s, obviously. Ever since Meredith Whitney’s controversial and widely misunderstood call on 60-minutes back in 2010 municipal bonds have been thought untouchable by many. Martiak says that works in investors favor by keeping the supply of muni’s lower than it otherwise should be, making the bonds trade more dear than they otherwise might. The “day of reckoning” for municipals has yet to arrive. Martiak notes that the market is $3.7 trillion and only $900 million worth of muni’s defaulted in the first quarter of this year; a failure rate which would be the envy of most industries.

One Response to "Strategic Briefing – Staring at the Fiscal Cliff"

George N. Wells June 20, 2012 at 5:12 am

Apologies for not accepting the leap-of-faith transition from increasing taxes to higher unemployment. If you look at the demand curves the story about continuing high unemployment beomes clearer – consumers aren't spending and (heaven forefend) they are still paying down credit card debt!

Here is the falsh about how "the system" works: consumers demand products and services, suppliers try to meet demand and when demand outstrips capacity businesses hire more people, purchase more equipment which makes their suppliers hire more people and buy more equipment. Consumers, not Plutocrats, are the real: "Job Creators!"

When the consumer comes back to the table the the businesses will hire more people. The businesses will make higher profits and coninue to whine about taxation.